Traditional automobile insurance premium pricing is based on aggregated statistical historical data to produce rating factors. The aggregated statistical historical data typically includes an insured person's driving record, credit-based insurance score, personal characteristics (age, gender, and marital status), vehicle type, garage location, vehicle use, previous claims, liability limits, and deductibles, among other information. Additionally, discounts on traditional automobile insurance premium pricing are available based on the presence of protection devices (like airbags or antilock brakes) in the vehicle, driving education courses taken by the insured person, and mileage driven by the vehicle, among other considerations. Furthermore, traditional automobile insurance premium pricing is a fixed cost, assessed annually and usually paid for in lump sums on an annual, semi-annual, or quarterly basis.
Usage Based Insurance (UBI), on the other hand, typically individualizes insurance premium pricing based on the mileage driven by the vehicle as determined by Global Positioning System (GPS) location data obtained for the vehicle. UBI, therefore, attempts to more accurately price insurance based on actual usage of the vehicle, since there is a correlation between claims made against insurance for accidents for a vehicle and the mileage driven by that vehicle. Additionally, recent developments in technology have increased the effectiveness and cost of using telematics devices installed in vehicles, thereby enabling insurers to capture not just how many miles an insured person actually drives, but how and when they drive too. The result has been the growth of several UBI variations, including Pay-As-You-Drive (PAYD), Pay-How-You-Drive (PHYD), Pay-As-You-Go, and Distance-Based Insurance.
The introduction of driver assistance technology, vehicle autopilot, and self-driving vehicles has generally reduced accident risks and claim and loss costs. Nevertheless, traditional and UBI automobile insurance premium pricing has generally not taken into consideration the risk and cost reduction resulting from the usage of advanced driver assistance systems (ADAS).